Today, Hong Kong stock gaming stocks are in full circulation, with Sands China plummeting 32%; Wynn Macau falling 28.97%; MGM China falling more than 26%; Australian Expo Holdings falling 24%; and the total market value of the six companies evaporating over HK$130 billion in a single day.

According to the news, the Macao SAR government held a press conference on the afternoon of the 14th to announce that it will launch a 45-day public consultation on amending Macao SAR Law No. 16/2001 “Casino Lucky Gaming Management Legal System” (commonly known as the “Gaming Law”).

According to the introduction, the consultation focused on nine areas, including the number of grants for running Lucky Gaming casinos, increasing legal requirements for the supervision of authorized companies, employee protection, strengthening the review mechanism for authorized companies, gaming intermediaries, and partners, introducing government representatives, promoting projects with non-gaming elements, social responsibility, and clarifying criminal liability and administrative penalty systems.

Among the proposed amendments is the termination of the sublicensing system for gaming business licenses. Currently, under the so-called sub-license system, Sands China, MGM, and Xinhao operate under full licenses from Galaxy Entertainment, Aobo Holdings, and Wynn Macau, respectively. Meanwhile, the six Macau casino licenses issued by the government will expire in June next year, and casino operators have been waiting for the Macao SAR government to release information on how and when to start reinvesting in gaming licenses.

Although no specific plans for the new betting distribution contract system and information on how many gambling cards will be distributed have been revealed, this uncertainty is enough to cause panic in the market.

01

Macau's gaming revenue continues to decline

It's no secret that Macau has only one gaming family. More than a year and a half after the COVID-19 outbreak, the once bustling Macau casinos are still in a lackluster business, with gaming operators waiting for tourists to return to the city on a large scale.

The total revenue of the gaming industry in Macau fell to MOP 4.44 billion (US$554 million) in August this year, the lowest total monthly amount since this year, far from the monthly average of US$3 billion in 2019 before the pandemic. Macau's gaming spending in August also fell by nearly half compared to July. In addition, previously, some residents returning to Macau from mainland China were infected with the Delta variant strain, causing another blow to the gaming center's recovery.

Looking at Macau as a whole, the industry structure is very simple. Half of it is the gaming and gaming brokerage industry, which also includes related hotels, wholesale and retail, and catering businesses. Businesses such as banking, insurance, and real estate account for only a small portion.

Source: Macao Statistics and Census Service

Meanwhile, casinos in Macau have also been an important source of revenue for American gaming operators such as Las Vegas Sands Group Co., Ltd., Wynn Resorts, and MGM International Hotels Group. In March of this year, Las Vegas Sands Group reached a multi-billion dollar deal to sell its iconic Venetian Resort and other Las Vegas assets.It is betting its future growth mainly on casinos in Macau and Singapore.

However, since February 2020, the gaming industry in Macau has faced a difficult situation. Macau began imposing strict restrictions on travelers in February last year. At the time, the COVID-19 pandemic was spreading in mainland China, and mainland China was the biggest source of big gamblers in Macau. Since then, the number of COVID-19 cases in China has dropped to close to zero, yet the number of visitors arriving in Macau is still far below past levels.

This difficulty is also reflected in revenue. Wynn Macau announced that net loss for the second quarter narrowed to US$116.6 million from US$352 million in the same period last year. The net revenue of MGM China, which is listed in Hong Kong, was US$311 million in the second quarter, more than nine times that of the same period last year, but a decrease of 56% compared to the same period in 2019. Sands China's second-quarter losses narrowed to US$166 million from US$549 million in the same period last year.

Before the latest outbreak posed a new threat to Macau, there were also signs that bright days were coming soon. Macau had just experienced a bit of recovery in May. At that time, it coincided with the “May Day holiday”, which attracted many tourists. Macau's gaming revenue for that month rose 24% from the previous month, reaching the highest level since the beginning of the pandemic.

However, Matt Maddox, CEO of Wynn Resorts, said that although the company was encouraged by strong gaming demand during the May holidays in Macau. But he said the idea of returning VIP room customers (that is, the richest big gamblers) to their previous level “won't happen.”

Earlier, on August 24, the Macao SAR government relaxed travel restrictions for tourists from neighboring Guangdong Province in China. Visitors to Macau now need to provide proof of a negative nucleic acid test result within seven days. Previously, the requirement was a negative certificate within 48 hours. This change may encourage more people to travel to Macau. As soon as the news came out, even the stocks of US-based casino operators and their stocks listed and traded in Hong Kong jumped as a result of this news.

However, according to a Jefferies' research report last week, the recovery in tourist numbers and gaming revenue will be gradual, and Macau's business activities may not return to normal until 2022.

02

Gaming faces regulatory adjustments

From 2003 to 2019, Macau's casinos experienced rapid expansion and growth in volume and operating revenue. According to the data, in 2003, there were a total of 11 casinos in Macau, the number of gambling stations in operation was 424, and the number of slot machines was 814. By the end of 2019, the number of casinos had risen to 41, the number of gambling tables had risen to 6,739, and the number of slots had reached 17009. The trend of scale expansion is very obvious.

Meanwhile, in 2003, the gross revenue of the Macau gaming industry was MOP 30.3 billion, peaking at MOP 316.9 billion in 2013. In 2019, there was also MOP 293.3 billion. Compared with the gross revenue scale in 2003 and 2019, the gross revenue scale of Macau gaming business projects has increased 9.7 times.

Therefore, some experts also pointed out that limiting the number of grants is not tantamount to weakening the competitiveness of the market, but rather striking a balance between maintaining the stability and openness of the gaming market, so that the SAR government can absorb enterprises with high development potential and strong capital into the Macau gaming market and enhance Macao's competitiveness in the international travel and gaming market.

In addition to possibly controlling the number of new gaming licences, the MSAR Government also intends to adjust the validity period of current gaming licences.

According to the original law, the grant period for operating the entertainment venue Lucky Betting should be specified in the contract and not more than 20 years. However, the “relevant period” may be extended once or in multiple installments as an exception, but the total amount must still not exceed 5 years, that is, the extension period must not exceed one-quarter of the original batch period, and the maximum period of the total batch period can reach 25 years.

However, in this law revision, the MSAR Government's consideration is that an excessively long and inflexible approval period may cause certain obstacles, and may reduce the motivation of authorized companies to optimize and improve their own services to attract new customers. For this reason, the MSAR Government intends to adjust the grant period.

In addition to this, the Macao SAR government also intends to adjust the qualification examination of executive directors and their minimum shareholding ratio. According to the original law, the executive director must first be a permanent resident of the Macao SAR and hold 10% of the capital of the authorized company. After the relevant laws are amended, the proportion of shareholders who are permanent residents of the Macao Special Administrative Region will be increased within the authorized company.

As far as the current gaming industry in Macau is concerned, these are all increases in the regulatory threshold, and they are also actions to adapt to the changes of the times.

Although the new gaming law has not been officially enacted, according to a research report from J.P. Morgan today, policy signals indicate that as casinos are about to renew their gambling cards, the regulatory scrutiny of capital management and daily operations will be stricter. Although the actual level of regulation and implementation is still the focus of debate, it has already caused great concern among investors, which is enough to downgrade HaoGamble shares.The bank downgraded the ratings of Wynn Macau, Sands and Melia to reduced holdings, and downgraded the ratings of Galaxy Entertainment, Aobo, and MGM to neutral.